Case Summary (G.R. No. 95546)
Petitioner
Makati Tuscany Condominium Corporation – insured party that paid premiums in installments but later refused balance payment on the 1984–1985 policy and sought refund of prior premiums.
Respondent
American Home Assurance Co. (A H A C), via American International Underwriters (Phils.), Inc. – insurer that accepted staggered premium payments and sued for unpaid balance.
Key Dates
- March 1, 1982–March 1, 1983: Policy No. AH-CPP-9210452; total premium ₱466,103.05, paid in four installments.
- March 1, 1983–March 1, 1984: Policy No. AH-CPP-9210596; same total premium, paid in five installments.
- March 1, 1984–March 1, 1985: Policy No. AH-CPP-9210651; two installments paid (₱52,000 and ₱100,000), balance ₱314,103.05 unpaid.
- Trial court judgment: October 8, 1987; Court of Appeals decision: affirmed in part, October 1991; Supreme Court decision: November 6, 1992.
Applicable Law
1987 Philippine Constitution; Insurance Code (P.D. 612, as amended), especially Section 77 (requiring full premium payment for validity) and Section 78 (acknowledgment of premium payment).
Factual Background
Petitioner and respondent agreed to insurance coverage with premiums payable in installments. Respondent issued and renewed three yearly policies. All initial and renewal premium installments were accepted. After two payments on the third policy, petitioner refused to pay the remainder, alleging invalidity of the contract absent full prepayment and sought refunds of all premiums.
Trial Court Ruling
The trial court dismissed both the insurer’s complaint for unpaid premiums and the insured’s counterclaim for refund, finding that:
• Acceptance of installments showed risk attachment during coverage terms, barring refund.
• Reservations in receipts precluded insurer from demanding unpaid balance after policy expiration, justifying petitioner’s refusal.
Court of Appeals Ruling
The appellate court reversed as to unpaid balance and affirmed denial of refund, holding that:
• Parties validly agreed to installment payments; the contract became binding upon acceptance of first premium.
• Section 77 does not prohibit installment arrangements.
• Equity and estoppel prevent insurer from denying liability after voluntary acceptance of installments.
• Petitioner’s obligation to pay the full premium balance of ₱314,103.05 was enforceable.
Issue
Whether staggered payment of insurance premiums invalidates the policy under Section 77 of the Insurance Code and whether petitioner is entitled to refund of premiums paid.
Supreme Court Ruling
Affirmed the Court of Appeals. Held that:
• Section 77 mandates full premium payment for validity but does not bar installment agreements when insurer accepts them.
• Section 78 allows insurer to waive prepayment requirement via acknowledgment.
• Acceptance of installments and renewals demonstrated mutual intent to bind the contract.
• Equity and estoppel preclude petitioner from denying coverage or demanding refund after having enjoyed the protection.
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Case Syllabus (G.R. No. 95546)
Facts
- In early 1982, respondent American Home Assurance Co. (AHAC), through American International Underwriters (Phils.), Inc., issued Policy No. AH-CPP-9210452 on petitioner’s building and premises, covering 1 March 1982 to 1 March 1983, with a total premium of ₱466,103.05.
- Petitioner paid that premium by four installments (12 March, 20 May, 21 June, and 16 November 1982), all accepted by AHAC.
- On 10 February 1983, AHAC issued Policy No. AH-CPP-9210596 renewing the 1982–83 policy for 1 March 1983 to 1 March 1984, again at ₱466,103.05, paid by five installments (13 April, 13 July, 3 August, 9 September, and 21 November 1983), all accepted.
- On 20 January 1984, AHAC issued Policy No. AH-CPP-9210651 for 1 March 1984 to 1 March 1985. Petitioner paid two installments (₱52,000.00 on 6 February 1984 and ₱100,000.00 on 6 June 1984) but refused to pay the remaining ₱314,103.05.
- AHAC sued for the unpaid balance; petitioner answered, counterclaimed for return of paid premiums, and later amended to seek refund of ₱924,206.10 for 1982–85.
- Petitioner justified nonpayment on alleged invalidity of the policy due to lack of a “credit clause” and the reservations in AHAC’s receipts disclaiming coverage for losses prior to full payment.
Issue
- Whether an insurance contract becomes invalid when premiums are paid by installment under Section 77 of Presidential Decree No. 612 (Insurance Code), and whether petitioner is entitled to the refund of premiums paid and/or to deny liability for unpaid installments.
Applicable Law
- Section 77, P.D. 612 (Insurance Code, as amended):
• Premium is due “as soon as the thing is exposed to the peril insured against.”
• “No policy or contract of insurance … is valid and binding unless and until the premium thereof has been paid,” except life and industrial life policies within grace periods.